July 2013 |

Proxima blog

Businesses around the world have been on a journey, whether deliberate or not, of cost externalization. What was once a labor cost, is now a supplier invoice. Our latest research into the spend behaviors and patterns of the Dutch AEX25 has found that a significant portion of revenues are now being spent outside their respective organizations. A key and somewhat surprising finding from the research is the extent to which it has occurred.

Revenues spent on labor costs now account for only 9.6% across the Dutch AEX25. In contrast, non-labor costs account for 76.1%. As the below table shows, it is a continuing trend:

New rules of cost management

Suppliers play a much bigger role in your business than you think

The larger role that suppliers play increases the need for management of this activity, as well as creating more complexity. And this management can improve business performance significantly.

The statistics from the research show however, that management practice has not kept pace with this greater externalization of cost and only a relatively small number of businesses have transformed their supplier relationship management models to account for this change.

These initial findings are consistent across several global marketplaces. Ultimately, these high-level findings mean that if business leaders neglect the strategic aspects of their supply base, or fail to maximize its value, could be missing out on a significant source of long-term shareholder value.

I will delve deeper into the findings of the research over the coming weeks, if you have any questions, thoughts or comments about any of the findings, please add them in the comment section below.